Look at the most commonly asked questions in relation to Insurance Fraud to understand why and how you can strengthen your fraud investigation processes.
Increasing cost of living and current economic landscape
Economic hardship is a recognised catalyst for increased cases of insurance fraud. The 2007-09 recession saw fraudulent insurance claims rise 17% in one year. The UK is currently seeing its worst economic crisis in over 300 years.
According to the insurer Zurich UK, the rising cost of living has led to a sharp increase in bogus claims this year, totalling £4.2m in fraudulent property claims between January and May 2022, a rise of 25% compared to the same period in 2021.
This situation is set to escalate following the end of the furlough scheme and financial grants for businesses. At the same time, practised fraudsters and organised criminals are evolving to exploit and take advantage of the fragmented operating environment caused by the pandemic and novice digital consumers.
Insurance fraud is big business for criminals, and insurance companies have always been fighting fraud to lower costs and protect the interests of honest consumers.
For example, Aviva has revealed a 13% increase in insurance claims fraud for 2021, reporting over 11,000 instances of claims fraud with a value of more than £122 million.
The UK still has the 4th largest insurance and long-term savings industry in the world and the insurance industry is 1st within the European area, which means it is rich pickings for criminal gangs and opportunistic individuals looking for loopholes to exploit.
Insurance fraud is neither a new nor a victimless crime. It is one of the oldest crimes, the first recorded instance being in the first century AD in Rome. It also has its victims, whether it is those who are injured or defrauded personally or innocent insurance policyholders who have to pay more to cover the fraudulent claims of others.
Whether classed as organised or opportunistic, every 5 minutes a fraudulent insurance claim is uncovered. Obviously, the ones that go undiscovered cannot be calculated but it is estimated that fraudulent insurance claims are costing honest customers over £1.2 billion.
Insurance fraud falls into one of two categories:
1. Underwriting Fraud
Underwriting fraud, or application fraud as it is also known, generally involves fraudsters using someone else’s personal details or wholly false information to take out policies.
It also applies to falsification of information at point of quote in order to reduce premiums.
2. Claims Fraud
False documents, deliberate misrepresentation of the circumstances of the claim, claims submitted to multiple insurers, inflated loss value, false claims, and many other types of fraudulent claims fall into this category, the common denominator being that the claims are made after a policy has been taken out.
Within Claims Fraud or Underwriting Fraud, there are many other types of fraud.
What are the most common types of insurance fraud?
Abandoning a Car
When an owner abandons their car, burns it, or destroys it in some other way, this is classed as insurance fraud if they then attempt to convince the insurance company that another individual or group of individuals were the ones who abandoned or damaged the car.
To intentionally provide false information on an application form is fraud. This type of fraud is very common and makes up the majority of denied life insurance claims, although it can involve any kind of insurance.
This applies to intentional fraud only, as people make mistakes on forms all the time due to misremembering or guessing answers they do not know. Making false claims intentionally, such as artificially inflating values or amounts in home or car insurance or providing false information for life insurance cover, in order to profit, pushes the act into fraud.
Change of Circumstances
Failing to inform the insurance company that certain factors have changed that would affect the policy holder’s premiums means that that individual may be committing fraud, even if they are not necessarily aware that they are. This can include things such as how you use your vehicle (shifting from a family car to driving it as a taxi, for example) or where you park your car overnight. If the insurer is unaware of any changes this can leave the claimant open to accusations of fraud.
Claims Farming is the term used to describe the activity of companies that have industrialised the generation of claim referrals to claimant lawyers. The lawyers pay a fee for each new claim referred to them. Members of the public are contacted by the claims farming companies, claiming to have records showing they have been involved in an incident and offering to arrange legal support under ‘no win – no fee’ arrangements.
Claims Vishing is the term used to describe telephone calls made by organised criminals to members of the public to extract personal information, often including bank details. They use sophisticated tactics to appear to be a genuine caller from an organisation the person they are targeting would trust. They then try to either mislead or manipulate the person into making a fraudulent insurance claim or use the information they gain to make a fraudulent insurance claim without the person knowing.
Crash for Cash
Crash for Cash is probably the type of insurance fraud at the forefront of people’s minds when the subject of insurance fraud is raised.
There are three different types:
- In a ‘Ghost Accident’, the incident being claimed for never actually happened and the scammers are making a fabricated claim.
- In an ‘Induced Accident’, the fraudsters will deliberately cause a road accident with an innocent target in order to claim that the other driver is ‘at fault’. An example of this would be a driver disconnecting the brake lights then slamming on the brakes in order to have the driver behind crash into them, then reconnecting the brake lights to frame the innocent driver.
- In a ‘Staged Accident’, both parties involved in the crash are in on the crash and the insurance company is sold a fake crash as being genuine.
This is a rare, yet not unknown kind of fraud, in which an individual or group of individuals attempts to defraud insurance companies by taking out a life insurance policy then faking a death and claiming the insurance.
The most famous example in the UK in recent years is the ‘Canoe Man’ case, where a man and his wife conspired to defraud an insurance company by pretending that he had been lost at sea in his canoe.
False Claims Fraud
A False Claim is when a claimant has completely invented the claim.
This encompasses a wide variety of fraud including filing claims for accidents or injuries that never happened, staging an accident or self-inflicted damage, filing with false information, or filing for non-existent damage.
False Police Report
If insured property is damaged, destroyed or stolen, a local police report needs to be completed. A lot of insurance fraud involves the fraudulent filing of a police report. Police reports are required by car and home insurance companies before a claim can be classed as legitimate. Criminals commit this crime in order to legitimise what has happened to justify a payout from the insurance company.
Generative AI can be used to enable fraudsters to forge realistic images of accidents / damages which never occurred and effectively deceive the insurers with associated claims. Ghost brokers may use generative AI to draft fake insurance policies or insurance certificates for an unsuspecting consumer seeking insurance. Scammers intent on application fraud can forge documents to purchase cover and gain the opportunity to follow through with fraudulent claims.
Ghost Broking is when a broker sells an insurance policy that does not exist. It is highly unlikely, if they are selling fake policies, that the broker is a legitimate broker. The way in which these criminals lure victims in is by giving them a cheaper deal than the genuine brokers will offer. They prey on desperation a lot of the time, but it can cost the victims a lot of money in the long run because not only have they lost the money they paid for the policy, if they are involved in an accident, the cost of reimbursing the other party for the damage/injury must come out of the victim’s own pocket.
There are two types of Ghost Broking:
1. The criminals buy legitimate policies from genuine companies using fake information and then they change the information before selling it on to unsuspecting customers.
2. The whole document is fake but dressed up to look like a real policy to convince the victim that they are dealing with a genuine broker and buying a real policy.
Identity Theft: where fraudsters steal personal information from consumers to carry out fraudulent transactions. Identity Theft within insurance comes in two forms:
- A criminal obtaining a person’s information in order to make a claim against that person’s existing insurance policy.
- A criminal obtaining a person’s information in order to take out a policy in their name, committing an act such as staging an accident, then claiming on the policy.
These will usually involve car insurance or health insurance but can involve other types of insurance too.
Inflated Claim Fraud
This type of fraud may be viewed as a victimless crime by opportunistic claimants. Inflated Fraud means that the claimant has added a little extra on top of their genuine claim. It would typically involve upgrading parts on a car being repaired after a road accident.
It can mean £100 here or there for insurance companies, and while a claimant may run the risk for a small gain, those £100s add up across the whole industry and are taken increasingly seriously.
Also known as ‘Soft Fraud’, Opportunistic Fraud is when a genuine incident occurs, but the claimant decides to either inflate the amounts involved or change information that is important to the claim. They do this to benefit monetarily. This can involve claiming on an item that they have already sold, exaggerating the amount of money or jewellery taken, or taking the claim right up to its limit even though a fraction of that is true.
Also known as ‘Hard Fraud’, Organised Fraud is carried out by criminal gangs, usually engaged in other illegal activities like money laundering and counterfeit goods. It is the opposite of opportunistic fraud, which usually happens after a genuine insurance policy has been taken out or a genuine claim has been made. The criminal gangs perpetrating Organised Fraud intentionally set out to commit fraud from the offset.
Organised Fraud is often carried out by fraud rings, which are groups of individuals who work together to deliberately commit insurance fraud. These groups of people are often linked to other criminal activities such as money laundering. A quite common example is when a doctor works with a group of claimants to provide false medical documents in order to submit multiple injury claims against both private individuals and corporate organisations.
New technology, like photo editing tools or artificial intelligence (AI), are used more and more in the insurance industry to commit fraudulent activities. The so called “shallow fakes” or “deep fakes” are becoming very common ways to alter the documentation or the scene of an accident.
Both strategies are very challenging for insurers and fraud investigators, while deep fakes are more sophisticated forgeries of images, videos, or audio recordings created using AI technology that require more time, shallow fakes are fraudulent images or documents easily modified with basic photo editing tools, presenting a significant and immediate fraud risk to insurers due to their simplicity and rapid production.
Pet Insurance Fraud
Pet Insurance Fraud is a relatively new fraud.
There are three common types of Pet Insurance Fraud that have been detected so far:
- The owner does not disclose pre-existing conditions (such as skin or ear issues) when taking out the policy, then claims the conditions are new to make a successful claim.
- A pet owner and unscrupulous vet collude to ‘max out’ a policy and share the proceeds. This can be done multiple times.
- The identity or breed of the dog are changed in order to make a fraudulent claim or save money on the policy.
Fraud at the policy stage instead of at the point of claim is known as ‘Policy Fronting’. It involves false information at the insurance policy stage in order to ensure cheaper premiums. High-risk drivers will often pretend that a lower risk driver is the main driver on their car insurance policy in order to access cheaper premiums.
How can insurers mitigate fraud now and in the future?
This rapidly evolving claims fraud landscape requires a dynamic approach to counter fraud strategies. Insurers will need to work hard not to lose the hard-fought progress they have made in the battle against fraud and ensure they are as agile as the fraudsters.
It will be vital that companies consider hybrid working models beyond the pandemic and train their fraud investigation teams. Claims handlers will benefit from refresher training to raise awareness of the methods and characteristics of the new fraud patterns to assist in the identification of claims anomalies and the referral of suspect claims to their fraud team colleagues.
It is clear that there is an even more compelling business case for data-supported decision-making in insurance investigations. Sherlock Investigation from the CRIF suite of anti-fraud solutions is helping over 100 UK insurers to time- and cost-efficiently combat fraud by using this agile, real-time counter fraud tool.
With Sherlock Investigation, insurers can verify and validate vehicle accuracy and accident history, correct phone numbers and identity validation, DOB, documents, and whereabouts. The tool also enables users to investigate and cross-check insurance claims histories from over 40m records, covering home, motor and PI insurance. Insights can include: hidden claims connections between parties of past and present claims whether motor, home or personal injury; previously unknown phone numbers or different addresses associated with an existing number; non-disclosed claims histories at previous linked addresses; inconsistent property attributes; previously written-off vehicles and outstanding finance on vehicles.
An intuitive, easy to use desk-top tool designed to deliver counter fraud intelligence to the user in one click, Sherlock Investigation is cutting insurer fraud investigation times by circa 30%.